About Me

Monday, April 19, 2010

A Tax By Any Other Name

Now that most of us have been moved out of intensive care after our annual encounter with the tax man, it might be a good time to go over a few, let's say, basic parameters of the situation. The IRS and the system it oversees have become synonymous with all that is mean, cruel, and heartless about the government – and for good reason. Other than on April 15, most citizens of the self-supporting and law-abiding class enjoy precious few direct encounters with the bureaucracy – mostly limited, on any given day, to the post office and, on the odd unlucky occasion, the DMV (which is at state level anyway). Direct encounters with local government are few and far between – although one can very easily feel the pressure and the oppression by simply reading the daily paper or watching the news. There is always some poor schmuck getting ground up in the machinery – and the dominant feeling on the part of those witnessing the spectacle is invariably, “Better him than me.” But then once in a while someone who shouldn't be entangled in the mechanism of totalitarian bureaucracy winds up a victim... and that makes the rest of us feel that the floodwaters are rising, that it's no longer just a matter of the underclass, or what Tom Wolfe called “the chow” (in “The Bonfire of the Vanities”), being in a constant struggle with the authorities, but, potentially, all of us.

So the income tax system is, for all intents and purposes, the main component, for most of us, of the line of battle between freedom, liberty, and self-determination on the one hand, and oppression, extortion, intimidation, and serfdom on the other. And yet, supposedly, the system expresses the will of the people, since it was duly enacted by the people's representatives. And even today, there is a substantial portion of the populace that sees taxation of income as the most efficient way to extract funding for government programs from the pockets and bank accounts of the citizenry – programs which, again, they have supposedly all approved by virtue of having voted for the representatives who, in turn, voted them into law. In other words, if we get the government we deserve, then we also get the tax system we deserve. And the tax system should, in fact, be the ultimate reality check – a reminder of exactly how much all of these “programs” that sounded so good when they were proposed cost. There is a saying, “if you can't do the time, don't do the crime”. Likewise, it could be said, “if you're not willing to pay for it, don't ask the government to do it.” The argument against this is, of course, that very little of what the government does these days is something it was directly “asked” to do by the citizenry. And yet, for every program, every expenditure, no matter how great or how small, one can identify at least one – and usually way more than one – citizen/voter who fervently wanted it, and who believes in it, and who would be unhappy indeed if it were terminated.

But let's go back a bit in history and recall how the whole thing got started. The income tax was, at first, not a big money maker. It was, in fact, designed to extract just a token amount of wealth from the very rich, in order to, I suppose, stave off violent revolution. Actually, we can be more precise than that. It was designed to relieve John D. Rockefeller of some chump change. His level of wealth, in 2010 dollars, would be sufficient to render Bill Gates his cup-bearer and Warren Buffet his valet. So he was, let's say, a prime target for not only the rabble, but the progressives, who were in full cry at that time. So, to throw them a bone, the income tax was appended to the Constitution... and, as far as I know, John D. Rockefeller was the only person wealthy enough to actually pay it for the first few years. But eventually, with the successive raising of tax rates, combined with “bracket creep” (which is, in turn, a product of inflation – which is, in turn, engineered by the government, i.e. the Federal Reserve) nearly everyone wound up paying taxes, right down to the drayman and the washerwoman. But at the same time, the proliferation of deductions, exemptions, credits, deferrals, rollovers, preferences, amortizations, etc., made it gradually easier for those in the upper reaches of the income scale to avoid paying -- at least to avoid paying anywhere near as much as was originally intended. In fact, it became a constant battle between the “progressive tax tables” and the layer upon layer of deductions – a battle which is still going on, and which, by and large, explains why the tax code is thousands of pages long and a veritable thicket of complexity. And, like any other tax system down through the ages, it's designed to tax people who are smart enough to earn money but not smart enough to avoid having it taxed – i.e. the middle class.

Given that all of this is true – which I contend that it is – what are we to make of the proposals of libertarians and some conservatives that the income tax system be abolished and replaced with something “simpler”? Or the even more radical proposals of anarcho-libertarians (but no conservatives) that it be abolished and not replaced with anything? Ah yes, a new day of freedom would dawn in America if only it weren't for that nasty, oppressive income tax. But how many are willing to argue that none – absolutely none – of the goods and services currently provided by the government would, in some form, be needed, whether the income tax existed or not? Yes, the anarcho-libertarians would argue just that; that all goods and services that were really needed, and that are now provided in a collectivist manner, would remain available and affordable in the post-income tax age, but now subject to strictly free-market choices and supply and demand? And yes, their argument is not only about things like schools and the post office; it extends to roads, public utilities, the police, the military... you name it. There might even be a space program, if you could get enough “Trekkies” to support it. What would be less likely is perpetual wars, entitlements, welfare, subsidies, government-supported and funded monopolies... the entire array of corrupt practices that authority with neither responsibility nor accountability have yielded in the nearly 100 years since the 16th Amendment was ratified. But! Not to forget – the Civil War was fought without benefit of the income tax, as was the Spanish-American War. There had been monopolies... oppression... bottomless corruption... all of the ills of democracy, American-style, long before that fateful day (February 25, 1913). So the notion that a sudden lifting of this burden would solve all of our problems is wishful thinking, to say the least.

But the other point was -- assuming the income tax no longer looms large, and the anarcho-libertarian model is not embraced by the body politic -- how are the goods and services still deemed necessary to be paid for? So the question is not “tax” vs. “no tax” -- it's more like “tax model A” vs. “tax model B”. And since it would still be the government who was doing the collecting, is there any guaranteed the new system would be any less corrupt, oppressive, or fraudulent than the one we have now? I'd like to see some evidence for that; pardon me if I'm skeptical. Local governments all over the country collect property and sales taxes, for example; are they known for their wisdom, efficiency, and lack of corruption? If Pittsburgh is any sort of example, the situation is actually worse than that at state level – which is, in turn, worse than that at the federal level. If you want to see really rank corruption in its rawest form, forget about Congress – just have a look in any city hall or mayor's office window in the land. (And is this, by the way, one possible argument against distributism? It could very well be – I hate to admit it, though.) Are local governments more responsive to the people than state and federal governments? Not that I've noticed. But they may be much more responsive to special interests.

So what does this all add up to? A continued presence of government at the federal level, providing goods and services through various programs – and supported by... what? Some form of tax; what else? Sales, “value added”, tariffs, taxes and fees on transportation, roads, utilities... taxes that we have now, and others that we haven't yet imagined. And would those taxes be “progressive”, which is the shibboleth of any liberal tax program? Not necessarily. If I want to further impoverish inner-city dwellers, I'm going to tax cigarettes, alcohol, (legal) drugs, fast food, and gasoline. This is the Bizarro version of the so-called “luxury tax” (which translates to – a tax on things most people wish they had, but don't; call it an “envy tax” if you like), and, in fact, has a lot in common with “sin taxes” (which translates to – a tax on things most people would like to do but can't, for some reason).

In any case, would the new system be any more “fair” than the one we have now? Would it encourage any more frugality in government than what we have now – i.e. none? Would it have any impact on class warfare or the politics of race? It might make them worse. Plus – all of the same people who are now favored in some way by the current system would have to start all over again, pressing for a renewal of their favored treatment. It might not be long until the tax code would be just as long and Byzantine as it is now, and for the exact same reasons.

So... all I'm saying is that, yes, the income tax and the IRS are easy targets... but they are really just stand-ins for what should be the real target, i.e. government oppression and exploitation of the citizenry. But no one wants to tackle that, because it's too big, too pervasive, too scary... and, to tell the truth, no one wants to admit just how bad it's gotten. The IRS is a convenient villain, like the guy in the old serials with the curly mustache and the top hat. But really, the IRS is just a tool of much higher powers... and the tax code is their Bible and gun combined. And whoever wants to eliminate, or reduce, taxes has to be honest with themselves as to, again, what goods and services currently supplied by government they are willing to get along without. Ask the “tea partiers”, for example, if we should bring the troops home from Iraq and Afghanistan – right now, today. Then you'll find out how serious they really are about cutting down the size and cost of government. Everyone has their pet program... their cause... their rice bowl. No one who profits from the tax code wants to see it go away – not one jot nor one tittle. And as to those who do not profit, even they probably have that one favored program that they would just as soon be kept on the books. So add it all up, and you have a recipe for no change whatsoever. But as I've tried to show, even the most radical change might not improve our existence as much as some people want to think.